Apparently, when Juniper pre-announced Q4 results a few weeks ago, they didn't quite get all it all out there. In their Q4 report yesterday after the close, the routing giant did meet its revised guidance for Q4, even hitting the top end for EPS. But forward guidance was even more dismal than expected - at least if after-hours trading is to be believed. Here's a quick table of Juniper's numbers in some context:
|$ in millions||Q4/10||Q1/11||Q2/11||Q3/11||Q4/11||Q1/12
|Operating Margin (non-GAAP)||24.5%||22.3%||21.6%||20.0%||18.6%||11-13%|
The first quarter is never Juniper's strongest on a seasonal basis, and with the slowdown in Q4 the street wasn't really expecting them to hit the projections that were still out there ($1100M and $0.26, really?). But just how low they went took the street off guard and shows just how profound the company's winter slump has been. As with a few weeks ago, Juniper blamed weak demand from some of its largest service provider customers.
Part of this hopefully is related to the company's product development cycle, as customers hold off a bit on current gear waiting for the new stuff just around the corner. Another part, as mentioned on the call, is an ongoing shift of capex from wireline to wireless. This is probably why we are hearing little from the largest service providers (Verizon, AT&T) about pulling back because they're just shifting their spending away from the backbone as they build out LTE and buy up spectrum. And when they're not shifting spending to mobile, it's cloud infrastructure right?
While Juniper may be bearing the brunt of a perfect storm, all this also suggests an opportunity for the next tier of fiber operators who don't have a wireless division and are looking to take share from AT&T and Verizon with enterprises. Big or small, they don't seem to be shying away from capex and are rather well positioned to make a push here. I will be curious to hear from Level 3, CenturyLink, tw telecom, Windstream, AboveNet, and the rest on whether they are seeing greater passivity from the AT&T, Verizon, and Sprint (as if they could get more passive on wireline?) as we enter 2012.
But perhaps we should also consider some competitive effect here. Could a resurgent duo of Cisco and Alcatel-Lucent be giving Juniper a bit more trouble than they're willing to admit?
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